Paycheck Protection Loans Program to Small Businesses

Congress has approved a paycheck protection loans program of up to $10 million each to small businesses as part of its most recent coronavirus relief package, referred to as the CARES Act. Loan maximums will be determined by a formula, described below, based on the borrower’s payroll costs, with per-employee salaries capped at $100,000.

The Paycheck Protection Program is intended to cover payroll and operating expenses between February 15, 2020, and June 30, 2020. Loans will be forgiven for firms that take steps to protect 2019 employment and wage levels. Certain retroactive provisions are designed to encourage the reinstatement of reduced wages and rehiring of employees who have already been furloughed.


Loans are available to:

  1. Businesses, nonprofits, veterans organizations or tribal businesses having 500 or fewer employees. This number includes individuals employed full-time, part-time or on another basis, and will probably consist of an average employee count during the past 12 months.
  2. Sole proprietorships, independent contractors and self-employed individuals.

Loans through this program will not duplicate relief provided by another SBA program. Participation in this program may prevent an organization’s benefiting from other financial aid provided by the CARES Act, such as employment tax credits.

What is the maximum loan a business can receive?

The maximum loan must be the LESSER of $10,000,000 or the formula below:

  1. 2.5 times the average payroll costs (up to a maximum of $100,000 per employee) for 12 months prior to the loan date PLUS the outstanding balance of an Emergency Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and the date of the loan. Different dates apply for seasonal businesses. Payroll is defined as salary, wage, commissions and similar compensation. It also includes severance pay, health insurance premiums and other group healthcare benefits, retirement pay, and state and local tax on employee compensation. Do not include sick leave wages for which a tax credit is allowed under the Families First Coronavirus Response Act.

The loans will be available through eligible FDIC lenders in the near future. Loans are 100 percent federally backed, requiring no collateral or personal guarantee from borrowers.

How the loan is forgiven:

Tax-exempt loan forgiveness will be available for funds used to pay the following expenses for eight weeks from the loan’s origination date:

  1. Payroll (subject to an individual salary cap of $100,000).
  2. Group healthcare benefits including insurance premiums.
  3. Interest on mortgage and other qualifying debts prior to February 15, 2020.
  4. Rent and utilities.
  5. Payment of any retirement benefit.

Total forgiveness cannot exceed loan principal and documentation is required. While loan forgiveness may be reduced if total employee pay or the number of full-time equivalent employees has dropped from 2019, if the reductions were due to the pandemic and are reversed by June 30, 2020, penalties will not apply.

Portions of loans that are not forgiven must be paid back within 10 years, with interest not exceeding 4 percent. Such payment is deferred for a 6- to 12-month period following the loan date.

We anticipate that, over the coming weeks, the government will issue administrative guidance related to the practical implementation of these initiatives, and we will keep you updated.


This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. H V & Partners recommends that you consult professional tax, legal and accounting advisors before engaging in any tax, legal and accounting action or transaction.

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